August 22, 2005

Some notes on comparable worth

My wife, among others, noted that the headline to a Washington Poststory, "Roberts Resisted Women's Rights," was based in part on Roberts's strong opposition to "comparable worth". My wife briefly described some of the economic analysis of comparable worth but asked me to add some details.

I would have complied anyway, but inasmuch as she is currently an invited guestblogger on the top-rankedblog in the world, I am especially eager to help out.

In the late 1950s and early 1960s research had established that U.S. women working full-time outside the home earned, on average, only about 60% of what U.S. men working full-time outside the home earned. Research also suggested that in many workplaces women doing the same jobs as men were paid less. Observers therefore attributed some or all of the gender gap in wages to discrimination against women. (And these observers were not comforted at all when someone pointed out that, in a striking coincidence, God told Moses--Leviticus 27:3-4--that women were worth only 60% of what men were worth.)

In response, Congress passed the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. Together they established in federal law the principle of "equal pay for equal work". A man and a woman doing the same job must be paid the same. I'm open to references claiming otherwise, but I've read that these laws are enforced strongly and that compliance has been, and is, high.

Imagine, then, the surprise and disappointment of the laws' supporters when for nearly twenty years following the laws' passage, the ratio of women's pay to men's pay remained almost exactly 60%. Here is a graph (from June E. O'Neill and Dave M. O'Neill, "What Do Wage Differentials Tell Us About Labor Market Discrimination?" NBER Working Paper No. 11420).

Activists then argued that the principle of equal pay for equal work should be extended to "comparable worth": different jobs, but jobs that were judged comparable, should also have to pay the same. I recall a television show long ago that used as an example tax assessors and librarians. Tax assessors were mostly males and they earned more than librarians, mostly female, did. But according to a multidimensional test devised by work experts, the education, intellect, and skills required to be a librarian were comparable to those required to be a tax assessor. A comparable worth law would thus make it illegal to pay librarians less than tax assessors.

I'll comment first on what economics has to say about what the likely effects of a comparable worth law would be and second on what we think we know about why women earn less on average than men.

A comparable worth law is analytically identical to a minimum wage law, a minimum wage imposed on jobs held primarily by women. Economists' theoretical and empirical research on minimum wage laws suggests the law would therefore have the following effects.

1) Some women would receive increased pay and, especially in the short run, would be unambiguously better off.

2) Other women, however, would be worse off. They would bear two kinds of costs: some would have their work hours cut below what they would like to have, or they would lose their jobs altogether; some would see their working conditions worsen (fewer fringe benefits and more effort demanded). These costs would tend to grow over time.

3) Which women would win and which would lose? Experience suggests that less educated, younger, and minority women would be more likely to lose.

4) The number of people needed to enforce the law would grow, and the legal apparatus needed to enforce the law would broaden and become more convoluted.

Why do women earn less than men to begin with? Discrimination is a possibility. Economics cannot rule it out. But theoretically and empirically, another explanation is more appealing: women earn less because of their choices. Specifically, many women choose to combine a career with family responsibilities. Those responsibilities induce women to accept lower wages in exchange for the flexibility--"family friendliness"--offered by certain occupations.

This "choice" hypothesis seems more consistent with a number of observations than does raw discrimination. For one, never-married women who have never had children earn about the same amount as never-married men who have never had children. (See the O'Neill and O'Neill paper referenced above.) These women presumably are freer to devote the same amounts of time and energy to their careers as men, and the market seemingly rewards them accordingly.

(I know, discrimination might explain this, too. Maybe men--we filthy dogs--discriminate more against married women. Because they are less "available"? But this seems like a stretch. And I won't deal here with the objection instantly raised by one of my female MBA students: "That proves nothing other than that never-married men are losers!")

Two other stylized facts are that the male-female wage gap tends to increase up to about age 40 and then it starts to decline, and that holding constant the number of children a working woman has, her wage gap compared to men is larger the further apart in time her children are born. I'm sorry, but I don't see discrimination easily fitting with either of these facts, but these facts do follow rather readily from the choice theory. See Fischel and Lazear, "Comparable Worth and Discrimination in Labor Markets," University of Chicago Law Review, Summer 1986.

One of the country's leading experts on this topic, June O'Neill (former director of the CBO, former vice-president of the American Economic Association, and currently Wollman Distinguished Professor of Economics at Baruch College), has concluded that the vast majority of the wage gap can be attributed to differences between women and men in their work experience and occupational/family choices. A short, non-technical article on comparable worth by Professor O'Neill is here. In the concluding paragraph of the paper referenced above, the O'Neills state (p. 33):

. . . the gender gap is attributable to choices made by women concerning the amount of time and energy to devote to a career as reflected in years of work experience, utilization of part-time work, and workplace and job characteristics. There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics. What the average woman sacrifices in earnings from choosing jobs that allow for part-time work and flexible work conditions is presumably offset by a gain in the utility of time spent with children and family.

Should the reader not completely trust economists and their econometric tricks--perish the thought, but there's no accounting for taste--I suggest a recent column by Anne Applebaum in the Washington Post (2/23/05, p. A19). Ms. Applebaum writes:

It isn't ability or discrimination that hold women up most, in other words, but the impossibility of making a full-time commitment to work in a culture that demands 80-hour weeks, as well as to family in a society unusually obsessed with its children.

We all know this anecdotally, but research confirms it. A British sociologist, Catherine Hakim, recently concluded for example that out of 3,700 working-age women she surveyed, about a third were fully focused on their jobs, about a third were fully focused on their families, and about a third wanted a mix -- meaning, invariably, that they took the sort of job that doesn't lead to fast-track promotion. If these numbers hold there never will be a 50-50 split between men and women at the highest professional or managerial levels of anything: The ratio will always hover around 2 to 1.

Is this nature or nurture? I don't see that it matters. What matters is that those women who want to become high achievers can do so, but those who want to stay home some of the time aren't forced, by economics or social pressure, to take high-pressure jobs.

Finally, let's look briefly at long-standing reasoning in economics that suggests discrimination, alone, can't explain the wage gap. Suppose, for the sake of argument, we think the wage gap is due entirely to discrimination. Currently, women earn about 75% of what men earn. If discrimination alone explains this wage gap, an entrepreneur--Teresa Heinz Kerry? Barbra Streisand? Carly Fiorina?--could replace an all-male firm with an all-female firm and immediately reap a 25% reduction in labor cost with no loss in productivity. Even if labor cost equaled only 20% of the firm's revenues, this change would raise the firm's net income as a percentage of sales by five percentage points. Is that a lot? Yes. A rough estimate is that the average U.S. firm's earnings equals five to ten percent. (I don't have a cite for the overall average; a quick Googling turned up this data on chemical firms' earning about 9 to 10% on sales.)

That is, pure discrimination would create significant profit opportunities for non-discriminators, such that discriminating firms would tend to be replaced by non-discriminating firms. firms that discriminated against women would create significant profit opportunities for firms that did not discriminate against women, and as discminating firms failed, male employees would tend to be replaced by women. [Better language in response to James McMurrin's comment below. Thanks, James.] Profits are a powerful motivator. Economists, at least, don't bet against them.

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» WHY DO WOMEN EARN LESS THAN MEN, OR DO THEY? from Michelle Malkin
Last week there was a brief flurry of interest in the idea of comparable worth - the idea that the law should require that women and men working similar jobs should earn the same salaries. This idea was popular in... [Read More]

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From what I remember during the comparable worth debates and shortly thereafter, female college graduates tended to earn more than males with the same college degree and training/experience. This is for individuals freshly out of college. Any stats available that still shows this more than a decade later?

But there is one problem I have with this argument. IF it is a comparable job that requires comparable skill...then the market should dictate that there is comparable pay unless there is a taste for discrimination in the market place biased against women.

The only statistical way to evidence 'discrimination' is by two primary conditions, position and performance. Theoretically, the individual who is most productive in a position should be the higher paid employee, correct? We know this obviously doesn't work out (for a variety of reasons that may or may not be discriminatory), but in principle, over the course of multiple corporations and like positions this should be a stastical reality in a free market environment where productivity equals profit.

What this means is that the only way to truly measure the level of wage discrimination is by a comparison of position (if time worked is comparable) and pay. Say both a male and a female are Accountant II's and say the female has equal or greater performance. If consistently, over time it is demonstrated that the woman's salary is lower, then that difference has to be based upon discrimination if the similarity in hours worked is equal or similar. There is no other variable that it could be.

Why? Because if she has negotiated a lower salary for 'flexibility' then in fact we are not comparing apples to apples and would then have to measure that versus a male with similar flexibility negotiated to see if there is a wage difference.

If it is implied by the hiring agent before she takes the position, and unbeknowst to her, that her salary is less, because expected woman issues such as maternity or extra time off because of the kids, then that in and of itself is discrimination.

So the question that was never fully addressed in your piece, is whether or not we are truly comparing apples to apples. Do women A who do the same job as men B over the same amount of time, with similar or greater performance get paid less than men B? If she (they) get paid less over enough industries, then you have to consider that as a prima facie case for discrimination.

I don't have the data to prove this, but my hunch says it is logically correct. I haven't done the analysis.

In terms of the market savings created by using discriminated workers...

I refer you to Economics of Discrimination, by Gary Becker. Since you are in the field I am sure you have heard about it. It is a little out dated, but it still has relevant points.

I recall an article from the paper long ago where some nurses were outraged that the men cuting the lawn of their hospital were paid more than them. They wanted raises that would place their pay above that of the lawn men.

Of course, the simple market-based solution to this problem would be for the nurses to take jobs mowing the lawn so they could get that higher pay. They did not want to do this because the work was nasty and hot and that job had lower status.

It might be worth while to consider that jobs pay in coin other than cash. For example, nice working conditions and higher social status. All too often, women opt for nice cushy indoor jobs that don't require heavy lifting or getting dirty, yet they demand the same premium given to nasty, dirty, outdoor jobs that break your back. All in the name of "equality."

Most people are not aware of how arbritrary comparative worth is. One can manipulate the results towards any group by putting greater weight on the job traits that favor the group, or , equivalently, have more traits (all with equal weight, of course) that favor them. For example, weight the hardship of working outdoors less and the intellectual demands of administration more, and voila, secretaries are worth more than truck drivers. Or just put in more things that favor secretaries (exposure to paper cuts, working for bad bosses). Another trick is to give a wider variance to responses on items that favor a group. For example, set it up so that the hardship of working outdoors only varies from, say, 3 to 4 across all jobs while intellectual demands varies from 1 to 10. This will result in a greater difference in scores favoring secretaires.

"Currently, women earn about 75% of what men earn. If discrimination alone explains this wage gap, an entrepreneur--Teresa Heinz Kerry? Barbra Streisand? Carly Fiorina?--could replace an all-male firm with an all-female firm and immediately reap a 25% reduction in labor cost with no loss in productivity."

This last line of reasoning almost lost me. What you're describing seems to be a firm based on pure discrimination, and then you state that this firm would have a competitive advantage (which is true), and thus "pure discrimination would create significant profit opportunities for non-discriminators, such that discriminating firms would tend to be replaced by non-discriminating firms."

It looks backwards- that is, a firm that engages in pure discrimination has greater profits than one that does not engage in 'pure' discrimination. I think it would have been more accurate to outline it this way:

If women are receiving 25% less pay for the same amount of work, a company can save money by hiring only women. It can pay them more than they are currently earning (thus giving them a financial incentive to join) while still paying less than it would for the "over-valued" males.

In other words, the value of labor works in the exact same way as the value in products on the market. If the same product is being sold cheaper somewhere else, people will go buy that product. If the same value of labor is being paid less somewhere else, companies will go buy that labor.

The key here is the phrase "same value," which in terms of labor means "same productivity." As the point of your essay states, there may be other factors of increased cost (fewer hours, greater flexibility in what hours are worked etc...) that make the "cheaper" labor more expensive than it appears.

Have left out other factors such as actual time worked? Women typically receive a broder range of stated and non-stated benefits that men do not receive. Maternity leave, monthly time off for "women's issues", latitude for tardiness, etc. In my 40 years of experience, I have only met one female in the tradeindustry and she was married to a lead carpenter.

IF it is a comparable job that requires comparable skill...then the market should dictate that there is comparable pay unless there is a taste for discrimination in the market place biased against women.

The problem is that it's extremely difficult to measure what is a comparable job. Comparable skill can sometimes be measured roughly, yes, but how much do you value, say, not being able to see your family all that much, a real problem in military jobs or in being a trucker? What about increased risk and danger? What about worse working conditions or work environment-- compare factory work to office work to working outdoors? What about the ancillary non-wage benefits that come from working a job where you get to interact with people and really feel like you "make a difference"-- jobs like being a librarian or teacher? Undoubtedly there are many people who, if the wages were the same, would rather take a job where they felt like they were "doing good" than one where they wouldn't. And hence the wages are somewhat higher for the jobs that many people feel lack the intrinsic meaning of the jobs that do good.

Economists don't reliably expect to be able to accurate measure the value to place on all these different factors-- value that changes with each person-- except by one way. That way is the relative wage rate that people will accept in order to perform the job. Legislate a uniform wage rate, and you'll see too many people trying to perform the job whose wages were raised, along with attendant unemployment, and too few people wanting to perform the job whose wages were relatively lowered to the "comparable" job.

Blah, blah, blah. All well and good, but all it does is highlight the fact that women are bringing home less bucks than men and doing twice the work --doing the bidding of their employer AND of their husband.

The obvious solution is to governmentally mandate:

1. that all women receive the greater of (a) an across the board 35% bump up in pay, or (b) a rate and level of pay equal to or greater than what their immediate supervisor receives, and

2. require that all workplaces be comprised of at least 50% or female workers.

Let those male employers and economists try to wriggle out of that one.

Then let's get back together in 20 years and see what the pay discrepancies are then.

Comparable worth doesn't take into account supply and demand either. All professors should be earning about the same, but if there are a lot less professors around who can or will teach real science, then the money to get them will be higher. Their classes will inevitably be larger too since there will be a shortage of professors in that area so it stops being truly comparable at that point.

One can see women working on highway crews these days. Although you may see a few driving heavy machinery, the vast majority of them are standing around directing traffic. Discrimination? I don't think so.

I'm not an economist, I can only speak from my experience in IT for the last 15+ years. But one thing I have noted that no one ever seems to mention is that women tend to sell themselves short. What I mean by that is during interviews with candidates for a job, men tend to ask for a higher salary and benefits (vacation, options, bonuses) than women do. Male candidates often seek a large raise over their previous job, where women tend to ask for a lesser amount. Its also rare for me to have a woman negotiate over benefits. Why this is I don't know, maybe a passive/aggressive difference between how men and women are raised?

Small company mentality here, but when we hire people we do factor in what they are asking in the amount we offer. If the position is 60-70k range, and a candiate comes in asking for 60, we'll offer less than if the same candidate were to ask for 70k. You come in asking for 60 and we offer 64, we figure we've made you an offer you can't refuse. You ask for 70, we may offer 68-70 range and hope its a number you can work with.

The company I work for has 40-50 positions that require a MBA. About 75% of these positions are filled by females. I would estimate that during the last 5 years, 75% of the women below age 40 have taken off for maternity leave and other family matters. One woman in her 40's has taken off approximately 2 months the last two summers to spend time with her children, even though her husband is a full-time househusband.

One trend I've noticed is that the males seem more likely to seek and attain employment with other companies and in other areas which, I understand, generally increases one's income more quickly as compared to those who stay in the same place.

BTW - nice, sexist comment by jaybird, "doing the bidding of their employer AND of their husband." What century are you living in?

I was reading through these comments and finding the intellectual arguments very interesting, and of a high quality. A few I even had to re-read to be sure I was getting the point. Then I came across jaybird's effort which is a masterpiece of illogicality and absurdity. I am sure I don't have to labour the point: just read it. Then it occurred to me that perhaps - I can't be sure, but perhaps - all the previous comments were by men, and she was the first woman to voice a view. Am I right? And if so, does that tell you anything?

But in any case, I must throw my weight behind the market forces argument. I just don't see how blind discrimination of such a degree could possibly last five minutes in a free market. If you can do the same job as well as the other guy for less pay, then the job has to be yours, not his. If the employer won't see it, then find another employer. There should be plenty who will relish kicking their competitors into the long grass with your help. It should be easy.

And is the wage gap an across the board average? If so, it would be even more incredible to put it down to discrimination. It would mean that for every woman who was paid at the same level as a man, there would have to be another receiving only 50% of men's pay.

Good gracious, folks, things take time. That's why it's hotter in August than June, even though there's more sunlight in June. Human society has existed for thousands of generations, and it's only been within the last half-dozen or so that having women work in most non-domestic tasks (except farming's precursor, gathering) has not been considered unusual. America is one of the most advanced deomcracies in the world, and women have only been able to vote for less than a century. Would you expect the very next Congress to voted in after they won the vote to be half female? Need I remind you that there are still places in this world where women are not allowed to drive.

Plus, biology and sociology have intertwined to make it a fact that becoming a parent disrupts a woman's career more than a man's. I wonder what the stats are for men versus women who have never become parents.

Washington state actually enavted some sort of stupid comparable worth rules for their government employees' salaries in the late 80s. I don't know the details but my personal contact with this is my MALE roommate who worked as a lifeguard at a City of Seattle pool. He got a fairly large check at one point because some bureacrat had decided that lifeguards were underpaid and this was his "back wages". Kinda funny -- the one beneficiary of such muddled thinking I knew was a guy.

A fellow named Warren Farrell--a sociologist, I think--wrote a book called "Why Men Earn More: the Startling Truth Behind the Pay Gap--and What Women Can Do About It." Farrell breaks it down to 25 considerations, including the willingness to relocate and the danger/comfort and status of the jobs, all mentioned above. He argues that if you factor for really equal work, women may actually earn more, but only if you factor in these other conditions.

Farrell, by the way, has been on the board of directors for NOW in the past, so he's hardly an old dinosaur trying to defend the status quo.

He adds that, by whining about the fictional gap, we actually hurt women: if they new the truth about why some jobs pay more, they would (or at least could) make different choices.

Jaybird's suggestion that all female workers should get a 35% raise mandated by the government would make women workers pariahs among employers. Why would anyone hire a woman above market price for her labor? The inevitable result and unintended consequence would be that employers would avoid hiring women and dump those they have.

The false assumption of Jaybird is that women are working at a discount due to prejudice. They are not. Women receive lower wages in general because they make different choices than men to receive different rewards. For example, they choose different jobs and pursue them differently, largely because they see being a mother as their primary job. Women are more likely to choose portable professions like teacher or nurse and structure their job around their children. For most women, the non-cash rewards of being a mother provide a greater return on their labor than mere money. That is the flaw of measuring the worth of the labor of the different genders in only one dimension, money.

While that's true, I think you've missed the point of the post. You're assuming there's a gender gap still to be addressed. Equality has already been reached. There's no time to be taken.

"Plus, biology and sociology have intertwined to make it a fact that becoming a parent disrupts a woman's career more than a man's. I wonder what the stats are for men versus women who have never become parents."

My I respectfully suggest that you reread the post? I know there's a lot there; but your question has already been answered:

"Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics."

In other words, when all other things are equal, pay is equal. End of problem.

What these socialists want -- and make no mistake, they're socialists -- is for pay to be equal even when all other things AREN'T equal. They want some bureaucrats to decide what a job is worth, rather than letting the market work out the value. That way madness lies.

Again, I meant no disrespect by suggesting you reread the post, but rather simply acknowledged that it's easy to overlook details. It's clear that your reading comprehension was MUCH better than jaybird's!

Dell Gines:

"So the question that was never fully addressed in your piece, is whether or not we are truly comparing apples to apples. Do women A who do the same job as men B over the same amount of time, with similar or greater performance get paid less than men B? If she (they) get paid less over enough industries, then you have to consider that as a prima facie case for discrimination."

The whole point of the comparable worth movement is NOT to compare apples and apples. It is EXPLICITLY about comparing apples to oranges, deciding that they both have the same worth in the eyes of some group of bureaucrats, and then commanding that the buyer pay the same for each. It doesn't matter that there was a glut in apples this year and the orange crop was near devastated: you have to pay the same for both of them.

Do women A who do the same job as men B over the same amount of time, with similar or greater performance get paid less than men B? I'll quote Mr. Newmark's post:

"A man and a woman doing the same job must be paid the same. I'm open to references claiming otherwise, but I've read that these laws are enforced strongly and that compliance has been, and is, high."

I'm with him: I'll respectfully listen if you have evidence that the law is NOT being followed; but I haven't seen any such evidence to date.

I came here from your wife's comment at Michelle Malkin. I am staying because I like the blog. Please thank your wife for sending me here.

I have over 22 years experience taching Compensation Management as well as other HR courses at a graduate school of business. I've spent a considerable amount of time reading and discussing "Comparable worth". My opinion is that it is mostly (but not totally) hooey. As one of the commenters noted, if nurses are upset that lawn mowers earn more, then let nurses go mow lawns.

If (and I admit this is still an if, though less and less every year) women have access to any job in the marketplace, all they have to do is go to the higher paying job.

They do not because few of us work strictly for money. Nurses, for example, are nurses because they like being care givers or, as a commenter said, "making a difference". That feeling is part of their compensation.

Another issue is comparing women's pay and men's pay. If we simply compare women's and men's pay, there is a big difference. If we compare the pay of a female Texas A&M Chemical engineer, working in the petrochemical industry in Houston having 10 years continuous experience with a man meeting the same criteria, we find that almost all the difference in wages goes away.

In other words, the 60% comes from comparing apples and oranges. My suggestion, when anyone confronts you with the 60% figure is to ask them if they know how it is calculated and what it means.

Personally, I cannot disagree with the 60% (or 65, 70, 80 or any other number). I can't agree with it either. It is a totally meaningless and useless number unless I know how it is calculated.

I work in Information Technology and we're hiring. I'm going to tell the headhunters to send only women candidates, that way I'll save 25% in salary costs. Anyone think that I'll get equally experienced and qualified candidates for 25% less money?

There are a set of hidden assumptions here that are wrongheaded and lead to the false conclusion that women suffer from pay discrimination.

The first is that a woman's career must be the focus of her life and that giving birth and being a mother is a distraction from that. For most women, it would be the reverse. Her career interferes with her primary job as mother.

The second and most odious assumption is that only those jobs that pay cash have value. Most mothers don't receive much of a salary for being Mom but you rarely hear of one who doesn't love her job. Being a mother brings rewards money can't buy. Now and then in public I see a mother hug her baby with an expression on her face that approaches rapture. I have yet to see any of my female coworkers exhibit such ecstasy holding their best Powerpoint presentations.

The feminists who forward the argument of comparable pay are framing it in an intellectually dishonest way to fit their template of how women should live. In their frame of reference, mothering has no value; only paid work outside the home has value. Measuring value only in money is one of the serious flaws in their argument.